When it comes to numbers, there is always more than meets the eye. In operational finance, you will learn how to read the “story” that the balance sheet and income statement tells about the company’s operations. The insights you gain from this “financial story” will then become a tool for short-term decision-making at the top management level relating to current assets, current liabilities and the management of working capital. Finally, by the end of the course you will understand the financial consequences of managerial decisions on operations, marketing, etc.

AC

Fantastic course, such a well laid out structure, Miguel sir explained with such enthusiasm, especially the case with Working Capital as to why it's not an asset. An excellent course!!!

JF

Jul 01, 2018

Filled StarFilled StarFilled StarFilled StarFilled Star

Amazing course, the questions posed are very insteresting and you actually have to think to be able to solve them. The best course of the first 4 courses of this specialization.

Na lição

Week 2: Operational Ratios and Forecasting

In week 1, we looked at Polypanel’s Balance Sheet and P&L Statement. In the Balance Sheet, we noted that receivables increased from €188,000 in 2004 to €649,000 in 2007. We left off with the question: Is this difference due to an increase in sales or delays in payments from customers?
In week 2, we will introduce operational ratios, the tools we need to disentangle both effects and understand what’s going on below the surface. We will also conduct a forecasting exercise of Polypanel to understand how well it will be positioned to pay back a potential credit line in the future. Objectives: By the end of the session you will understand the different types of operational ratios (Days of Collection, Days of Inventory and Days of Payables) in order to analyze how well a business is performing. You will also learn how to use forecasting to support financing decisions.

Ministrado por

Miguel Antón

Associate Professor

Transcrição

[MUSIC] Now the next thing we want to compute would be the noncurrent assets to complete the asset side. So, Noncurrent assets are fixed assets. Intuitively what do you think is going to be the fixed asset next year, exactly the same as this year right? The only thing that changes is that you depreciate every year a little bit. So fixed assets this year, next year could be the fixed assets this year minus the depreciation plus some new investment in fixed assets that you do. In the case of Poly Panel as you would see. They would not be any new investment in fixed assets forecasted. How with this, we have to all the asset sides now. There is only now long term debt. Now what do we do about long term debt? Well as we pay back the long term debt, that amount would start diminishing, right? So basically, long term debt would be equal to long term debt last year, minus the repayment of the debt, plus new long term debt if you ask for new long term debt, right? So with that we would get that part, okay? So there's only one last part, which is equity, right? Now, what about the equity? Well equity, as you know is the capital of the founders. And that capital that was put by the founders and all the shareholders increases with the profit of the company. So the profit of the company produces. If it's not given out as dividends, it's reinvested in the company. Which is in a way fattening the equity, right. So equity in T + 1, would be the equity in T, plus the net income in T + 1, as we said, minus dividends if you give out some dividend [INAUDIBLE]. And with this we have the equity. Now it turns out we have six out of the eight. Now it's interesting there's, did you see something special there? You will say yes, we haven't done anything about the cash and the credit. And I tell you exactly, do you realize that cash and credit are the last two things that we fill in on a balance sheet? Let me repeat it again and I put it in yellow so that it sort of highlights to you very clearly, cash and credit are always the last two things that you fill in, in a forecast of the balance sheets. If you keep this idea in mind, I will be happy for the rest of the course here. So for a forecast of the balance sheet. Cash and credit, the last two things that you fill in. They act as a quotient. Let me explain. So if you call A prime the sum of the total assets except the cash. And if you call L prime the sum of the liabilities except the credit. And then the assets side is bigger then the liabilities side. In other words, A prime is bigger then L prime. That means that you need credit. And then you ask the bank for the credit necessary to balance the balance sheets. If it's the other way around., if L prime is much bigger then A prime that means that you have extra cash and that cash is the one that is balancing the balance sheet. Now with that in mind, we would have cash, and credit, and we have everything. However, there is this small thing that you perhaps didn't realize that I jumped quickly to it so that you didn't realize, but now I'm coming back to it. Do you remember that in the forecast in the PNO, we actually left a question mark for the financial expenses. And this was because financial expenses depended on debt, but then debt depends on A prime and L prime but L prime depends on equity. Follow me, don't get lost. L prime depends on equity, and equity depends on the net income of the year. But as we saw before, the net income of the year depends on the financial expenses which in turn depends on debt, and debts on equity, right? So there's a loop here. Now do you see that there is a loop here? That if you put financial expenses, depending on the debt, depending on the L prime. L prime depending on equity. Equity depending on net income. And net income depending on financial expenses. Do you see that there is a loop that everything depends on everything and there is no beginning to the loop. Actually, if you go to the Excel and then you put that in the cells, you would see that there is a blue arrow. You see here this blue arrow. And it tells you there is some inconsistency there. This means there is a loop there. I am going to tell you a small shortcut to make Excel reach an equilibrium there. Which is if you go to Excel to File and to options then you will get to formula and then you click that small part that says "Enable Iterative Calculation" then that allows you to make the blue arrow disappear so that you can do the forecast property. Now as you can see, we have seen a forecast of the P&L and an example of how to do it a forecast of a balance sheet. Now with this in mind, what we're going to do next is do a forecast Best of the Poly Panel case more specific. [MUSIC]